Opening Statement by OPEC Conference President to the 2nd Ministerial Meeting of the EU-OPEC Energy Dialogue

by HE Sheikh Ahmad Fahad Al-Ahmad Al-Sabah, OPEC Conference President and Kuwait's Minister of Energy

Vienna, 2 December 2005

Excellencies, ladies and gentlemen,

It is a great pleasure to welcome you to the OPEC Secretariat in this beautiful and historic city for the Second Ministerial Meeting of the EU-OPEC Energy Dialogue. I am particularly pleased to welcome our EU counterparts, Their Excellencies Mr Malcolm Wicks, UK Minister of Energy, Dr Martin Bartenstein, Austrian Ministry of Economy and Labour, and Mr Andris Piebalgs, European Commissioner for Energy.

As you know, today’s meeting comes six months after the inaugural event in Brussels on 9 June. That meeting provided us with the opportunity to set priorities on issues of greatest mutual concern to our two Organizations. We also had the opportunity to learn more about each other and the way we operate. This is very important when establishing a long-term relationship. Since then, much work has been carried out behind the scenes in both Brussels and Vienna, with the intention of moving the dialogue forward in a timely and effective manner, in accordance with the decisions reached six months ago. The purpose has been to cultivate a dialogue that addresses practical issues in an objective and cooperative manner and, at the same time, is forward-looking in its scope, realistic in its approach and effective in its execution.

The most visible evidence of the hard work undertaken was the holding of the dialogue’s first joint Roundtable in Vienna at the beginning of last week, when the assembled experts from both the EU and OPEC, as well as external financial specialists, examined oil market developments in greater depth. They identified two areas of interest, namely the refining sector and financial markets, both of which were seen to influence the volatility that has gripped the market recently. The report on the Roundtable will be reviewed at today’s meeting.

Other important advances in producer-consumer dialogue have been taking place elsewhere during this period. Of particular relevance to today’s meeting was the formal inauguration of the International Energy Forum’s Secretariat in Riyadh, Saudi Arabia, less than two weeks ago. At the same event, the Joint Oil Data Initiative (JODI) database was also launched, and both the OPEC Secretariat and Eurostat, the statistical arm of the EU, together with four other international organisations, have been behind the development of this facility, which provides data on oil, gas and refined product output, stocks and demand from more than 90 countries.

Excellencies, since our last meeting in June, the oil market has undergone major developments. Increased demand coupled with significant supply disruptions resulting from Hurricane Katrina pushed oil prices to levels that gave all of us deep concern.

However, thanks to the spirit of cooperation and dialogue, wherein OPEC immediately increased its production to offset any physical shortage of crude, and the emergency response measures from the IEA, prices began to moderate. In addition OPEC put 2mbd of its available spare capacity to the market. Crude prices have moderated significantly since early September as a result of these actions, and are moving towards market fundamentals. The products market is still under pressure from existing bottlenecks in the downstream sector. This problem needs to be tackled seriously, for if the downstream is not able to produce the products that the market wants, then there is pressure on the light sweet crudes, which drives up the price of other crudes to a certain degree.

Although OPEC believes that solving the problem in the downstream sector is the responsibility of consumer countries, many of our Member Countries have taken it upon themselves to build additional refineries, both domestically and abroad, with a view to helping solve this problem in the overall interest of the industry. However, we will continue to urge consumer countries to invest in the downstream sector so as to remove the pressure on product prices.

In addition, we believe that it will be in the best interest of the final consumer, and indeed of the industry as a whole, if consumer governments review and rationalize their fuel taxation policies, especially when prices rise to levels that are considered very high. There is also a need to reduce uncertainties of future demand so that timely in both the upstream and downstream sectors can be made.

Excellencies, two months ago, the OPEC’s Ministerial Conference restated its commitment to producer-consumer dialogue with the adoption of a Comprehensive Long-Term Strategy. Noting that the process of dialogue constituted a crucial element of this strategy, it was recommended that it should be broadened to cover more issues of mutual concern, such as security of demand and supply, market stability, investment, technology and the downstream sector.

Cooperation and dialogue do not happen by chance. They are the result of inspiration, vision, concern, open-mindedness, flexibility, dedication, hard work and other attributes that, combined, seek to improve the welfare of mankind generally and, in this particular case, the efficiency and effectiveness of the energy sector – notably the oil market. Thanks is therefore due to all those who have contributed to this process over the past 12 months since preparations begun to start this dialogue.

However, we are only at the beginning of the road, and it is a very long road. Perhaps it is a road with no ending, because our dialogue has been set up on a permanent basis. A good part of the discussions in the dialogue – both now and in the future – will concern issues that evolve as the industry evolves and, therefore, have a strong underlying continuity about them, requiring frequent reappraisal as market conditions change. What we have begun now is a big challenge and I believe we are up to it.

I should like to conclude my opening remarks by reaffirming OPEC’s continuous commitment to engage in fruitful dialogue with consuming nations in order to acquire greater understanding of the challenges facing the different parties involved and determine means of meeting such challenges in a constructive and harmonious manner. We believe that through such dialogue, measures can be adopted that will lead to an open, transparent and stable market, beneficial to all participants, producers and consumers alike.

Clearly this process is now already well under way. It is being driven by the commitment, enthusiasm and hard work of both the European Union and OPEC. This will, without any doubt, serve the best interests of both groups, as well as those of the oil market itself and the global economy at large.

On a final note, I should like to extend our sincere gratitude to our host country the Federal Republic of Austria, an important member of the EU, for their great hospitality since we moved our headquarters to this beautiful city 40 years ago. I am confident that, under the EU Presidency of Austria, we will further strengthen the very good relationship between OPEC and the EU.